Home loans: Things that keep you from repaying home loans

With the downfall of real estate market and banks many important decisions have to be made regarding home loans. Such a situation would prompt the common man to think that banks would prefer mortgages and loans to be paid off early. But is this the real scenario?

Most people are unaware that there is something known as prepayment penalties which have to be paid for successfully paying off your loan amount before completion of the loan term. Strange, isn’t it? But this is the truth. May be this does not affect you in any way since a mortgage pay off might not be in your budget. But it is important to know that an ordinary conforming home loan taken for a term of 30 years would take an average 42 years to pay off. Is this alarming enough?

Let’s explore the reasons for this. First home serves as a house only for five to seven years after which most people move to a larger or different home. The starter homes are just for the beginning. A lucrative home offer makes a new purchase necessary and refinancing ensues. Thus the thirty year period begins all over again.  Similarly each move adds up the years that would be required for paying off the mortgage.

To decrease mortgage pay off time there is something called mortgage acceleration. According to this a mortgage can be paid of before the prescribed term. So a 30 year loan that would normally take 42 years too be paid off can be done in half the time by mortgage acceleration. This technique also helps in that no more refinancing and loans would be required. It also allows a cut in interest rates.

To begin the exercise we need a chart. The amount of money that can be saved and the number of years that can be reduced by increasing the loan repayment installment by $100 should be calculated. There are amazing sites that cater to these needs. A search online would give you the right mortgage acceleration calculator and help figure out how to reduce your debt while maintaining your life style. Some of these sites charge a fee but there are free sites too. The next thing to be done is to make a financial plan wherein an amount of money equivalent to a month’s repayment amount should be saved every fortnight. This would reduce the term by two months every month for a slightly increased usual monthly repayment installment. This mortgage payment program would save you loads of cash that can be put to better uses.

If you have got the above calculations and have understood the simple arithmetic in it, you can be assured of way to mortgage acceleration and an early pay off of your nagging mortgage. Adopt these measures and refrain from becoming one among millions of unfortunates who continue paying their mortgages for years and years longer than the mortgage period. Become wiser and do not pay one dollar worth of interest in excess.